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Moody's has upgraded the country ceiling for foreign currency bonds of issuers domiciled in Jordan to Ba2 from Ba3 and the ceiling for foreign currency bank deposits to Ba3 from B1, reported the investors service.

Consequently, the government of Jordan's foreign currency bonds have been raised to Ba2, while the government's domestic debt has been upgraded to Baa3 from Ba3. All the new ratings carry stable outlooks.

Lessening of the geopolitical risk stemming from the threat represented by Iraq has facilitated the upgrade, says Moody's. In the period prior to the war on Iraq, there was considerable uncertainty concerning the duration and outcome of the war and possible harmful effects on the political and economic stability of countries in the region, including Jordan. However, following a relatively short and contained war, such concerns have now subsided.

The negative financial impact of the war on the Jordanian economy has been largely mitigated by generous grants that are expected to amount to around 10.6 percent of gross domestic product (GDP) in 2003, notes Moody's.

The predictability of such grants and the strong support that Jordan has received from the international community are positive elements and are factored into the ratings. Although the pace of economic growth is expected to slow down this year compared to 2002, the prospect for GDP to grow between five and six percent in the medium-term is good. Although Moody's believes that the regional instability does not stifle Jordan's economy, the country's full economic growth potential will be difficult to attain until such risks abate.

According to Moody's, Jordan's Ba2 foreign currency debt ratings continue to reflect the onerous, albeit declining, size of the external debt relative to GDP. Jordan's debt dynamic has improved over the past few years, and the prospect of a debt reduction following the exit agreement with the Paris Club has also improved.

Moody's believes that the Jordanian government's commitment to gradually reduce the fiscal deficit to under three percent over the next few years would contribute positively to reducing the debt, and is an important determinant for this rating action. The Baa3 rating for the domestic currency debt reflects the small size of this debt relative to GDP and the high degree of maneuverability in its management, says the rating agency. The new rating takes into account the government's strategy of gradual substitution of external debt with domestic debt.

According to Moody's, the upgrade of Jordan's ratings reflects the positive impact on social and macro-economic stability of the reforms that have been undertaken over the past few years. A continued strong pace of such reforms is still necessary, however, to sustain economic growth and to reduce fiscal imbalances. External liquidity has improved markedly and foreign currency reserves now cover around one year of imports. However, poverty, unemployment, education and health issues continue to represent a significant challenge for the government, and are being addressed through the Program for Social and Economic Transformation (PSET). — (menareport.com)